DLR gets ‘good level’, new BRF bonds accepted

DLR Kredit is close to bringing to an end the latest round of refinancing auctions by Denmark’s mortgage credit institutions (MCIs), having today (Thursday) finished its auctions of one year ARM bonds, while BRFkredit has said it is pleased with the response to its new, pre-financed bonds.

DLR Kredit offered Dkr6.5bn (Eu873m) in total of one year ARM bonds with interest rate triggers. The next largest amount of bonds it is selling are three year bonds, of which Dkr2.8bn were offered yesterday and a further Dkr2.8bn are due to be auctioned tomorrow.

The volume of one year ARM bonds being auctioned is lower than in the past as borrowers switch to mortgage products with longer interest rate periods, responding to DLR incentives to do so, according to Pernille Lohmann, investor relations manager at DLR Kredit.

“The one year auctions have gone well,” she said. “We’ve had good levels and good interest.”

The average yield on the F1 bonds has been 0.23%, and the average bid-to-cover around 2.5.

An analyst said that the average spread on DLR Kredit’s one year ARM bonds was 17.4bp over Cita, around 1bp-2bp wider than for other MCIs, and noted that the average bid-to-cover was a bit lower.

“The pricing difference between the MCIs has come down in recent refinancing auctions and in the current one the spread difference is the tightest in years,” she added.

BRFkredit finished its auctions last week, and an official at the issuer told Nordic FIs & Covered that they showed that the issuer has been able to establish a market for pre-financed bonds, which the mortgage credit institution launched in June.

The so-called RTL F bonds are one of two new bond types that BRFkredit launched to finance existing mortgage products and are aimed at addressing rating agency concerns and regulatory requirements. The bulk of BRFkredit’s Danish krone auctions, which finished last week, were for the pre-financed bonds, of which Dkr7.4bn were sold out of Capital Centre E. Bonds totalling just shy of Dkr10bn were auctioned in total, with the remainder stemming from sales of traditional adjustable mortgage rate (ARM) bonds.

“What was most significant was that in the last days of the auctions investors were willing to buy the RTL-F bonds at the same rate as for Nykredit’s auctions of IT [interest rate trigger] bonds,” said Hansen. “There was no premium for the new product or the lower liquidity.

“We have been able to establish a market for a new type of bond and which trades virtually flat to the existing universe. Investors seem to accept the new product, so we are very pleased.”

Interest rate trigger bonds are ARM bonds sold under Denmark’s new refinancing legislation, and feature mandatory maturity extensions in specified stress situations.

BRFkredit held a standalone refinancing auction today to meet refinancing needs from loans generated under its joint funding agreements, offering Dkr2.1bn of three year floating rate notes out of Capital Centre E.